Silicon Valley’s undeserved moral exceptionalism

This essay appears in the March 19 edition of Newsweek. The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Silicon Valley likes to think of itself as morally exceptional. When Google went public in 2004, the Internet search company’s wunderkind founders, Larry Page and Sergey Brin, penned a letter to prospective shareholders that has become the Internet industry’s version of the Magna Carta. In it, they pledged that Google was “not a conventional company” but one focused on “making the world a better place.” Their manifesto followed a venerable tradition in Silicon Valley (meaning the swath of technology and Internet companies based in the cities and towns between San Francisco and San Jose). A decade earlier Apple co-founder Steve Jobs insisted that “being the richest man in the cemetery doesn’t matter to me … Going to bed at night saying we’ve done something wonderful … that’s what matters to me.”

The newest inductees to the Silicon Valley pantheon have continued to think very well of themselves and their motives. Mark Pincus, who introduced Farmville and Words With Friends to create pleasant online distractions, embraced comparable sentiments when taking Zynga public last year: “Games should do good. We want to help the world while doing our day jobs.” In the prospectus for what could be a record $10 billion initial public offering, Facebook founder Mark Zuckerberg promises that a similar philosophy will guide the social network. “Simply put: we don’t build services to make money; we make money to build better services. And we think this is a good way to build something. These days I think more and more people want to use services from companies that believe in something beyond simply maximizing profits.”

After the financial crisis and the great Wall Street swindles of the past few years, this all sounds refreshing. Toiling away in places with bucolic names like Sunnyvale and Mountain View, entrepreneurs create products intended to improve mankind and make the world a better place. The narrative offers an antidote to tales of bailed-out bankers collecting undeserved bonuses and job-crushing private-equity barons paying lower tax rates than their secretaries. But wishing to hold the moral high ground does not make it so – whether in industry, politics, or religion.

Though Silicon Valley’s newest billionaires may anoint themselves the saints of American capitalism, they’re beginning to resemble something else entirely: robber barons. Behind the hoodies and flip-flops lurk businesspeople as rapacious as the black-suited and top-hatted industrialists of the late 19th century. Like their predecessors in railroads, steel, banking, and oil a century ago, Silicon Valley’s new entrepreneurs are harnessing technology to make the world more efficient. But along the way, that process is bringing great economic and labor dislocation, as well as an unequal share of the spoils. Just last week, the Justice Department warned Apple that it planned to sue the company along with several U.S. publishers for colluding to raise the price of electronic books – monopolistic behavior that would have made John Rockefeller proud.

“During the second industrial revolution, the economy went through major transitions, led by 50 individuals who became incredibly wealthy, leading to huge unemployment,” says Joe Lonsdale, a 2003 graduate of the university founded by one of those tycoons, Leland Stanford. Indeed, Lonsdale is hoping to make his own fortune by “reinventing the infrastructure that powers global wealth” with his latest startup, Addepar. “Instead of the robber barons, today it is the technologists who are doing the destroying.”

A few Silicon Valley denizens are beginning to recognize the risks inherent in combining moralistic hubris with the Internet’s powers of creative destruction. At a closed-door meeting of high-tech honchos in Davos last month, Cisco Systems Chairman John Chambers and Glenn Hutchins, founder of the leading investment firm Silver Lake, warned of a potential backlash. Not unlike the torrent of bad publicity surrounding Wall Street after the financial meltdown, a flood of bad press or even new regulation could follow from continued technology-driven job losses or a major breakdown of cybersecurity.

The truth is, it’s increasingly tough for the establishment of Silicon Valley to argue that their business is any less evil, or does any more good, than the bulk of Corporate America. Underneath the haughty language of moral superiority lies the same profit motive that drives all businesses – and a ruthlessness rivaling history’s greatest industrial bullies.

EXPLOITATIVE MANUFACTURING
Take Apple’s manufacturing practices in China. By systematically outsourcing the assembly of iPhones and other gadgets to contract manufacturers like Foxconn, Apple has shaved its overall cost of production and plumped profit margins for shareholders. That’s neither unique nor necessarily evil. It’s a practice regularly adopted by toymakers, chemical producers, and food packagers, not to mention most of the rest of the consumer-electronics industry. But establishing an arm’s-length commercial relationship does not absolve a company from moral responsibility for the way its chosen partners treat workers.

Nike taught American business leaders this lesson more than a decade ago when its use of far-flung suppliers employing children in sweatshops became a public-relations debacle. Although Apple has a code of conduct for suppliers, audits them, and has published summaries of the results for several years, the company resisted more direct scrutiny until recently. Labor issues at Foxconn’s sprawling 230,000-worker complex in Shenzhen have attracted bad press for some time. It was not until that negative publicity spread from the relative obscurity of Mike Daisey’s off-Broadway monologue, “The Agony and Ecstasy of Steve Jobs,” to the front page of The New York Times and then to broadcast networks that Apple took more meaningful action, allowing the Fair Labor Association to conduct special audits of its suppliers’ factories in China.

INDIFFERENCE TO COPYRIGHT
Corporate shortcuts are not simply about reducing costs. They can, for instance, come in the form of looking the other way, something that Google and others are regularly accused of doing when it comes to respecting copyright law, especially as it relates to words, music, and video that tech companies don’t produce themselves. This tendency inspired two controversial anti-piracy bills, the Stop Online Piracy Act (SOPA) in the House and the Protect Intellectual Property Act (PIPA) in the Senate.

Near-passage of the legislation in January sent the Valley into a tizzy. As drafted, the bills would have forced Internet companies to block access to foreign sites that flout U.S. copyright laws. Opponents argued the laws would damage the freedom and openness of the Internet.

While both sides of the debate make legitimate points, it was remarkable how quickly legislators caved in to the website-blackout campaign mounted by Silicon Valley. Christopher Dodd, the former Connecticut senator who now chairs the Motion Picture Association of America, which supported the bills, calls it the “greatest backlash I’ve ever seen.”

Tellingly, big profit-driven sites like Google expressed sympathy but didn’t go dark – while the notably nonprofit Wikipedia, which had no revenues to lose, did switch off in protest.

DISREGARD FOR PRIVACY
A bigger battle remains to be fought on the privacy front, where Silicon Valley’s misdemeanors go beyond the fairly passive indifference that characterizes its approach to copyright.

Pushing the boundaries of what is generally considered acceptable, even decent, when it comes to exploiting personal information is a daily sport in the online world. That’s because a tweak here or there to the privacy settings of a social network or a tiny change to the code on a mobile application can mean a world of difference in the value of information an advertiser – or, in extremis, a government institution – can access about a usually unaware user.

Perhaps swayed by Silicon Valley’s altruistic spin, or slow to catch up with its rapid growth, Washington has, up to now, largely left the industry to regulate itself on privacy. That’s clearly not working. Hardly a day passes without some new revelation of an Internet or mobile company stepping a byte too far into the private business of its customers.

Among the more shocking of recent infractions, Google was found to have altered its computer code to trick the Safari web browser on Apple’s iPhones into overriding the privacy settings of millions of users. Once contacted by The Wall Street Journal about it, Google disabled the code.

The continual testing of limits is perhaps the dark side of the hacking culture extolled by leaders like Zuckerberg, who are steeped in the world of engineering. “There is a real sense of mission, with hackathons and staying up all night to solve this or that problem,” says Garth Saloner, the dean of Stanford’s business school. “It may seem slightly eccentric, but it’s tremendous fun for all involved. The only rule is there are no rules.”

While Saloner argues that most of the Internet’s top operators, like Facebook, strike a healthy balance between “adult supervision” and code writers “inventing something totally outside the lines,” Silicon Valley’s big kahunas aren’t necessarily the worst violators of privacy norms. Take last month’s kerfuffle around Path.com, a social-media application founded by a former Facebook executive, and backed by Shawn Fanning, whose Napster music file-sharing service was the godfather of online copyright infringement.

Path, which dubs itself a “smart journal that helps you share life with the ones you love,” was uploading users’ entire contact databases to its servers without permission. While Path amended the practice when outed by a savvy blogger, it quickly became clear it was not the only application swiping such personal data.

Individually, Silicon Valley’s privacy infractions can sound like minor peccadilloes. Some might have even been the result of perfectly legitimate oversights on the part of engineers so engrossed in their code writing that they’re unaware of the social implications of their work. Or it may be a consequence of a corporate culture that, to use a Facebook motto, preaches “Move Fast. Break Things.”

Either way, taken together they suggest that too many shortcuts are being taken to boost the value and profitability of the personal information being trafficked – the primary business line of many Internet companies.

CRONY CAPITALISM
Washington is beginning to understand that Silicon Valley cannot be trusted fully without supervision. On Feb. 23, the Obama administration introduced a Consumer Privacy Bill of Rights and vowed to persuade Congress to grant specific powers to the Federal Trade Commission and state attorneys general to enforce it. While Silicon Valley is presently adopting a cooperative approach to the White House initiative, the devil may come as the legislative details are hammered out.

It’s perhaps telling that, two days after the president unveiled his privacy proposal, Google named Susan Molinari, the combative former congresswoman from Staten Island, to head its D.C. office. There’s nothing inherently malicious about companies hiring hotshot lobbyists to protect their turf and, if possible, water down new rules. It’s just more “business as usual” than “don’t be evil,” which remains the first exhortation in Google’s corporate code of conduct.

THE MURDOCH MODEL
One of the ways the owners and founders of Silicon Valley companies have tried to maintain their guiding ethos is by asserting an exceptional level of control over shareholders. But this, too, has its own baronial shortcomings. Following Google and Zynga, Facebook’s IPO will segregate investors into the stock-market equivalent of first and second-class citizens, with Zuckerberg’s shares carrying 10 times the voting power of the stock being sold to the public.

Many of the venture capitalists and billionaires who invested in Facebook privately will also reap enormous gains from the deal – a list that includes Zynga founder Pincus. In return, many of these early investors are giving Zuckerberg the right to vote on their behalf. As a result, Zuckerberg will wield 57 percent of Facebook’s shareholder voting power with just around a fifth of the stock. That’s the kind of poor corporate governance that one day is likely to pit the interests of the founder against other shareholders, as it has at companies with similar structures like, most notoriously, Rupert Murdoch’s News Corp.

Which isn’t to say Silicon Valley has suddenly gone to the dark side. It’s just that its leading companies, among the largest and most powerful businesses in the world, are playing by the profit-seeking rules that prevail throughout the rest of corporate America. “Dreamers still go to California and have big visions about changing the world,” says David Tisch, managing director of TechStars NYC, which links startups with investors, and whose family knows about building businesses (Loews hotels, Bulova watches, and the New York Giants). “But most people are trying to get rich like anyone else.”

The original robber barons had decent intentions when they built railroads to connect America’s emerging cities and drilled oil wells that fueled the nation’s growth, but their empires still needed to be regulated, reined in, and in some cases broken up by vigilant watchdogs. Lofty words and ideals are fine for motivating employees and even for spurring sales, but they can also serve as cover for motives that clash with the broader interests of consumers and society. We need more than fancy promises in IPO prospectuses to ensure that the rise of the Silicon Valley engineer is good for the world.

Another harmful effect of the Silicon Valley higher powers is their constant lobbying to import more foreign engineers under the H1B Visa Program.

The yearning to drive down labor rates is a classic old story for owners of capital, going back a hundred years. As soon as a man becomes an employer of other men, he relentlessly strives to lower wage rates.

The H1B program has allowed American corporations to import of over a million foreign engineers and computer programmers from India, China, Russia and other countries. It’s a simple case of supply and demand. This huge mass influx of foreign labor has caused engineering and computer programming wage rates in America to plummet.

Yes, lower wages for engineers raises the profits of Silicon Valley higher powers, just as the importation of African slaves in the 1700’s sharpley raised the profits of American cotton and tobacco plantation owners.

But, there are terrible long term consequences. It has hollowed out American engineering schools. American kids who once would have dreamed of a good-paying engineering career now see that American engineers can no longer afford to buy homes or raise children.

The H1B program/scheme profits Silicon Valley higher powers, and it helps Indians and other impoverished foreigners, but it does terrible damage to American society as a whole.

Yet, almost every week, one can read of another Silicon Valley executive lobbying to expand the H1B program. No matter how low the cost of labor, it’s never low enough to please the owners of capital.

While these companies aren’t perfect, they differ from the robber barons of the past in one very important way. They offer invaluable services to everyone for free. While this may not justify some of their recent behavior, its worth pointing out.

Would you rather pay a company money or give it your contact list in exchange for services?

Sir, let’s not offend the engineers out of Stanford and Palo Alto who helped us in WW2 and continue to make technological advances in healthcare (for example) which have saved countless of lives. You mention companies which don’t come to my mind for moral exceptionalism and imply their employees joined to save the world, hardly! People come here from all over the world for work and a paycheck, not idealistic fluff. Same gold rush, different year.

Great article. This is a message that really needs to be heard. I think even non-techies are getting the picture about the deceptive practices of Google, Facebook, and their competitors. And it seems that the government is waking up too, but the government doesn’t really understand tech, and they move much slower than the tech world, so I think their ability to do anything constructive is limited. They will always be playing catch-up, because I can literally create a new app overnight that does something they could have never anticipated.

As for this comment:
“Would you rather pay a company money or give it your contact list in exchange for services?”

I’d rather pay, honestly. But I don’t think that opinion is widely shared, because people don’t understand that when they get something for free, they’ve traded away their quality of life, not to mention their privacy.

The thing about all these startups is that they have an idea first, and once they accumulate users by the millions, the companies try to figure out some way to monetize the idea. All it takes to build something like Twitter or Pinterest is time, one computer, and an internet connection. Unlike building a railroad, a telegraph network, or a steel mill, designing and developing software only takes time.

But despite fomenting a revolution here and there, these services do not provide real value. They could literally disappear overnight if certain servers were destroyed. All that these apps provide are ways to post content onto screens so that other people can see it. That’s all. And nobody is going to pay for that, especially when there’s always a “me too” competitor out there. And you’d be hard-pressed to find a good app without a horde of “me too” competitors.

So what happens when you have this hot idea, you have millions of users, but you’re offering a “product” that nobody would pay for? You have no choice but to turn it into a marketing channel. In some cases, the ads are called out as such. For others, you get “sponsored content” instead. Or most insidiously, you get “content” that is almost transparently mixed in with things that non-corporate users add. Just watch Chill and Pinterest over the next few months, the transformation will be seamless. These apps have algorithms that are ostensibly based around public consensus, but all they have to drop one fixed ad slot into that stream and it’s a gold mine.

It’s an upside-down world compared to the Industrial Age. Back then, you had to create tangible objects with inherent value. Now, inventions can can only survive with ads plastered all over them. Personally, I don’t want to live in that world, but that’s the way it’s going. You won’t be able to tell real content from ads. Maybe we’re already there. So yeah, I guess, you can have my Adblock plugin when you pry it from my cold dead hard drive.

I see no merit in distinguishing the contributions of the titans of Silicon Valley from earlier titans who brought us telephones, electric power, cars, movies, air travel, and so on. Neither do I see any merit in distinguishing the extent to which they pursue their self interest. Development in human nature sharply trails the development of economies and technologies. From Adam Smith: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

The immigrant economist Joseph Schumpeter was an early observer that the “process of creative destruction is the essential fact about capitalism.” I see in the division of the comments above a celebration of all the useful goods and services such destruction brings, and a lamentation of the attendant social and economic dislocation. We have to answer as a society how to cushion the latter while not strangling the former. In my opinion, we’re doing a pretty poor job of that right now.

This article raises valid points about the behavior of silicon valley companies, but I think the article is naive. A company exists to maximize its value or the returns for its shareholders and investors. Everything else is secondary. The idealistic statements, lofty goals, and image management we see from silicon valley companies (any company, really) serve to maximize value and nothing else. What do you expect the company to project? “We make money the old fashioned way: exploiting child labor, burning rain forests, and raping the environment!”

In reply to AdamSmith:
With all due respect I think you have it all wrong. Full disclosure: I am a foreigner in the USA, currently doing a research master’s in a prestigious American university, and I fully intend to stay in the US via the H-1B scheme.

The reason why so many foreign engineers and scientists come to the US is because the US doesnt produce enough engineers itself. In my department, about 90% of the graduate students are non-american. It’s not because an American department discriminates against American students, it’s because Americans are not interested in difficult subjects such as science and engineering, let alone at research level.

You seem to think that, if tomorrow the H-1B scheme was stopped, then all of a sudden the wages for engineering jobs would increase, many more american kids would study engineering, and america would start again producing lots of awesome engineers who earn a lot. I think this is non-sense. In my experience, the average american adolescent cares about football, mtv, big muscles and fast cars. That’s fine, and I’m not criticizing, but that doesn’t produce great analytical thinkers.

Furthermore, you may not be aware that in order to be accepted in the H-1B scheme, the company that sponsors you has to pay a fee and prove to the US Government that not a single American applicant for the job was qualified for it. If you get a H-1B visa, it’s because you are REALLY good and the company REALLY needed you.

Finally, I don’t know what sort engineering you do that you can’t even buy a home or raise kids, but I hear us petroleum engineers are not doing bad at all 😉

Search engines, fine, but their deal doesn’t include stealing my contact list. So they don’t get it.

But the Facebook/Zynga genre are total time wastes, some of the worst examples of American entrepreneurship ever. Bill Gates gave us productivity. Young Zuckerberg? He steals our privacy and our time, the two things in life that money can’t buy.

Rob’s right about Silicon Valley. They’re no less greedy or psychopathic than the Wall Street guys, they’re just phoney about it. That kind of attitude toward money and society is a lot worse than the in-your-face kind of New Yorkers.

1. It’s all middleware. Tablets and smartphones could and should be a chipset with a display screen, but the purveyors ALL ignore the thin-client model and churn out new iterations every 6 months. Why? To sell more of the same thing. Ever wonder why foreign countries have bandwidth which we do not enjoy? If we had that bandwidth it would be more obvious that a cloud-based stack and processor is the most efficient, and therefore the most likely to win the market. And yet, as if by magic, this industry does not follow basic market principles.

2. The entire internet is insecure. Why is it allowed? How did we go beyond scientific queries to online banking? How many operating systems will be released that cannot define the relationship between two nodes with absolute certainty?

It’s a crock. And with each passing day, generation, the more believeable it will become.

Great piece. The internet is global and although silicon valley firms are physically located in the SF bay area, the reality is they are effectively offshore in terms of jurisdiction. The next phase of protecting the rights of ever more connected individuals will need to be worldwide, and that infrastructure is not anywhere near in place. I’m not advocating world government, just consistent oversight to protect your data and privacy rights.

Root Cause Analysis;
All big; companies, organizations, governments, gangs are inherently bureaucratic and criminal, breaking countless laws without need of new ones. The commonality is inertia and the lack of equal protection under the law for big and small organizations. Inertia and heft let you play by your own rules, buying laws, influence and power which is the bastardization of America and capitalism. Each and every company mentioned from Apple, at the start copying its name from the Beatles and ultimately becoming a music business that they said they wouldn’t in order to use the name and not violate the Beatles trademark (forgot that one didn’t you) to Google with its Evil pay to play engine fraudulently masquerading as search, is a pedestrian and unoriginal undertaking in words and evil deeds. Human nature, just ask Darwin and Machiavelli.
The more things change the more they stay the same. For those with techno delusions ask yourself when it will be better with computers than it was before computers? Word to the incredulous, snap out of it.

Silicon Valley is simply the slave plantation of the modern era with cheap, foreign workers filling the pockets of a few scumbag traitors. The h-1b has been exposed as a scam against American workers but nothing is done because everyone gets paid off except American tech workers. Ask anyone who’s been in IT longer than a month.

Excellent article !!!
Here are some thoughts from a very old man now, who built his own computers before you could buy them at the stores, and was one of the very first to ‘connect’ to the web. This old man worked in the advertising/marketing business all his life. That’s the business that primarily figures out how to take your money out of your pocket, without you been aware of it. Advertisers, that’s the sellers, hire the best psychologists, besides others,to help them identify their prey, that’s you. They also hire politicians for protection. Why do they need protection ? you may ask. Well, most, not all, of these sellers are ‘honestly’ selling you things that are not ‘honest’, and also to keep away other ‘honest’ sellers from cutting into the action.

Computers are excellent tools for all productive purposes in all the fields. For other purposes, such as social networking as one example, in contrast, are not only unproductive, but they provide the perfect field for easy pickings by the above mentioned parties.

One more little thing, no one will give you something for nothing. (oh, maybe a church, or a philanthropist…no, no…they are into this also)